Automating Crypto: Algorithmic Trading

screen with code indicating trading bot

By Simon Harper
September 25, 2021, 3:14 PM

Automating Crypto

As cryptocurrency makes its way into the mainstream, people are looking for new ways to trade. Currencies like Bitcoin and Ethereum can be traded 24 hours a day, 7 days a week. Their prices are volatile which means that traders need to be responsive and alert. While we can’t monitor our trades all the time, computers can.

Algorithmic trading is where computers make automatic trades based on market information. The algorithms are set up and maintained by programmers who use mathematical formulas to determine which trades to make.

So how does it work?

On a simple level, an algorithm could be set to sell Bitcoin when it reaches a certain price.  The algorithms used by the best traders are extremely complex and will consider every piece of information available to them. Some algorithms will follow the market, while others will attempt to predict where the market will be in the future.

The models can be optimised for different investment strategies. For example, they can be calibrated to maximise returns over a year or a decade. They could focus on reliability using methods like Delta Neutral or take a high-risk high-reward investment approach. 

The best algorithms are ones which blend multiple approaches into a single algorithm, sometimes known as a ‘black box’. These algorithms may run several methods simultaneously and then act based on the average outcome. 

The Human Element

Investing can be emotional. Sometimes we panic and sell something we shouldn’t have or we hold onto currencies because we believe in them too much. Crypto markets amplify these emotional decisions because of their volatility. The highs are higher and the lows can bring you to zero.

Sometimes our mistakes aren’t even about emotions. Humans, as we know,  are prone to errors like miscalculations or typo’s. Keying in the wrong quantity or purchasing the wrong crypto can quickly become a disaster. And if you accidentally send funds to the wrong wallet, you’ve just lost the lot. 

Bias can also come into play and it is rarely noticeable. Rather than looking at the raw outcome of our calculations and analysis, we find ways to interpret it how we want to. If you’re an optimist, your favourite stocks probably aren’t that great. If you’re a pessimist, you might be selling too early.  Our biases can lead us to over estimating the performance of a currency or to simply not believe the answer our calculations give us. 

Automated trading provides a solution to this because the decisions are not influenced by emotion. The decision making is driven by programmers and mathematicians who optimise their algorithms based on analytical and forecasting methods. The strategies they lay out are then executed to the letter by computers. 

How we can help

At CDZ Investments, we use algorithmic trading to offer our clients sustainable returns. We tailor our mathematical models based on the latest research and your investment strategy. CDZ Investments manages over $1m which is seeing consistent growth. If you’d like to harness the power of algorithmic trading, contact us here.


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